Written by Alan Amling
Earlier in July, I wrote a blog post on the five questions about negotiations between UPS and Teamsters that you needed to know the answers to. A lot has advanced over the past weeks, with a UPS-Teamsters agreement announcement on July 25. As a former senior year for UPS, I’ve made the media rounds this month, speaking to The New York Times, Washington Post, and many more news outlets about the situation.
This is my first take explaining the implications of the historic deal between UPS and the Teamsters Union.
There is a clear winner, and it’s not UPS or the Teamsters; it’s the U.S. economy
Anderson Economic Group estimated the impact of a 10-day strike at $7 billion.
The first and only strike at UPS in 1997 lasted 15 days. The cost to the economy would be exponential the longer it lasted.
UPS will try to pass as much of this contract increase on to shippers and consumers, which will be inflationary, but not nearly as inflationary as a strike (e.g., demand would again outstrip capacity in the parcel market).
For the Teamsters leadership team, it was “mission accomplished,” but…
The Teamsters checked all their boxes and came away with a strong contract they can now leverage to organize Amazon warehouse workers. The likelihood of contract ratification by the rank and file is high.
Current UPS Teamsters will benefit from this agreement, but few new union jobs will be added. Nonetheless, this agreement will add momentum to the U.S. unionization popularity, which already has the highest approval rating since 1965.
Sean O’Brien said UPS put in “$30B in new money.” I’m estimating about $20B in new operating expenses on the high side over the 5-year contract, which is not insignificant. That’s a 35% increase over five years or about 6% yearly. The remaining $10B could be in the AC units in trucks and part of the 50+ items UPS and the Teamsters negotiated early on.
UPS is signaling an acceleration of its ‘better not bigger’ strategy with this agreement
The most telling part of the agreement was UPS’s commitment to only add 30k Teamster jobs (fill 22.5k open positions and add 7,500 new jobs) over the next five years. That is an increase of less than 2 % per year.In the previous five years, UPS added nearly 100,000 Teamster jobs—or about 7% per year.
Look for UPS to lean into B2B and away from B2C. If UPS wanted to be a leader in e-commerce shipping, they would have fought harder to increase their use of contractors and gig workers, which were limited under this agreement.
As wages rise, the relative cost of technology decreases. Look for UPS to add automation and robotics aggressively to increase efficiency.
FedEx, the USPS, and regional carriers will also benefit from this contract
If UPS tries to raise rates in line with their cost increase, competitors can match the increase, bolstering their profits.
Alternatively, they can leverage their lower-cost networks to come in with a smaller rate increase and take share.
There are risks to FedEx. The pay disparity between UPS and FedEx, who essentially provide similar services, will create another push challenging the independent contractor status of their drivers and put into question, again, why FedEx and UPS are governed under different labor laws (FedEx is under the RLA and UPS is under the NLRB, which is easier to unionize).
The big three e-commerce retailers will get bigger
Amazon Logistics delivers more packages per year in the U.S. than FedEx and will pass UPS over the next year as UPS continues to shed low-value e-commerce volume.
Ship-from-store and buy online, pick up in-store (BOPIS) will become even more attractive, and Walmart and Target are set up to capitalize on this trend.
Small to mid-size shippers, rural businesses, and consumers will see the most significant increase in shipping costs and should consider opportunities to bundle shipments with others in your geographies to lower overall costs.
Stay tuned as more details come out of this historic agreement. If you have questions or feedback, please email me at email@example.com.
Originally posted on LinkedIn